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TMI Blog2021 (6) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance u/s 35(2AB) of the IT Act, 1961 holding that before. tenth Amendment Rule, 2016, the Department of Scientific & Industrial Research (DSIR) was having no such power to quantify the expenditure incurred on in-house R & D facility without appreciating the fact that the DSIR guidelines provide for submission of Auditor's Certificate every year, which is scrutinized and even before the amendment it was incumbent upon the prescribed authority to go through the details submitted to it. 2. On the facts and circumstances of the case, the Ld. CIT(Appeals) has erred in deleting the disallowance u/s 14A r.w.r.8D of I T Rules, 1962 without appreciating the fact that the A.O had recorded his dissatisfaction regarding the correctness of the claim of the assessee during the assessment proceedings. 3. On the facts and circumstances of the case, the Ld.CIT(Appeals) has erred in not appreciating the fact that the assessee had suo-moto disallowed only a meager amount of expenditure in comparison to dividend income and section 14A of the Act lays down the mechanism for determining such amount of expenditure incurred in relation to exempt income in accordance with method as prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany suo-moto submitted for consideration of disallowance of Rs. 36.87 lakhs u/s.35(2AB) of the Act on account of disallowance of expenditure made by DSIR and at the same time, the assessee submitted that the same expenditure ( Rs. 36.87 lakhs) should be allowed as business expenditure u/s.37 of the Act. The Assessing Officer gave his findings from Para 7.3 onwards of his order. The Assessing Officer observed that the assessee company has claimed deduction u/s.35(2AB) of the Act at Rs. 419.49 lakhs, however, its claim has been approved by the DSIR to the extent of Rs. 358.35 lakhs. Therefore, the assessee company‟s claim of deduction was restricted to Rs. 358.35 lakhs and excess deduction claimed by the assessee company to the extent of Rs. 36,87,000/- was added to the total income of the assessee. 6. The Ld. CIT(Appeals) has discussed this issue at Para 3.5 of his order which reads as follows : "3.5. I have carefully considered the submission of the appellant in light of the facts of the case. It is seen that identical issue of the role of prescribed authority (DSIR) for the purpose of section 35(2AB) and the curtailment of the weighted deduction has been decided in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by Rs. 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed." 7. The Ld. DR fairly conceded that the issue is covered in favour of the assessee by the said decision of the Pune Bench of the Tribunal (supra.). In view thereof, maintaining the principle of consistency with the same parity of reasoning on the same set of facts and circumstances, we respectfully follow the order of the Co-ordinate Bench in ITA No.309/PUN/2014 (supra.) and since the Ld. CIT(Appeals) has relied on this decision and provided relief to the assessee, therefore, we do not find any reason to interfere with the findings of the Ld. CIT(Appeals) which is hereby upheld and relief provided to the assessee is sustained. Ground No.1 raised in appeal by the Revenue is dismissed. 8. Ground Nos. 2 and 3 pertains to the grievance of the Revenue in respect of the deletion of disallowance u/s.14A r.w.r.8D of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules). 9. The brief facts on this issue are that on verific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er observed that the claim of the assessee that it had not borrowed any funds for the purpose of investment in securities to earn exempt income, was also not tenable since entire money in the business comes in a common kitty. The monies received as share capital, as term loan, as working capital, as sales proceeds etc. do not have any different colour. Whatever are the receipts in the business they have the colour of business receipts and no separate identification sources have no concern whatsoever. Thereafter, the Assessing Officer made disallowance at the rate of one half percent of the average value of investment i.e. 0.50% of Rs. 406,47,45,829/- i.e. Rs. 2,03,23,729/- as per provisions of section 14A r.w.r.8D of the Rules. 11. The Ld. CIT(Appeals) at Para 4.4 of his order has given his findings and therein, he has stated that the assessee made suo-moto disallowance of Rs. 16.8 lakhs. He has further stated that the issue is covered in favour of the assessee in its own case by his predecessor‟s order for the assessment year 2013-14 which has been recently upheld by the Pune Bench of the Tribunal in ITA No.1232/PUN/2017 dated 28.02.2020 and following the said order, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware development services by Pune SEZ Unit and Hyderabad SEZ unit of assessee company with AE amounts to Rs. 39,12,23,042/-. The assessee has claimed deduction u/s.10AA of the Act against the profit earned by Pune SEZ unit The profit margin (OP/sales) of the assessee from its AE transaction for these transaction has been derived at 35.04% whereas the profit margin of the comparable companies as per the TP report of the assessee is 18.52% ( as per single year comparable margin). The assessee company was show caused why the excess profit shown because of close business connection between the group companies should not be excluded from the eligible profit for the purpose of determining the deduction allowability u/s.10AA of the Act and why disallowance u/s.10AA(9) r.w.s. 80IA(10) of the Act should not be made for the year under the consideration i.e. 2014-15. Thereafter, the assessee submitted detailed written submissions which are on record and has been made part of the assessment order. Thereafter, the Assessing Officer analyzed the provision of Section 10AA(9) r.w.s.80IA(10) of the Act and observed that where it appears to the Assessing Officer that owing to the close connection b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the Appellant's arguments advanced before the learned AO and before me in this Order as I have dealt with these arguments in my decision on identical disallowance [Section 10A(7) r.w.s 80- IA(10)] in the Appellant' appeal for the AY 2002-03, AY 2006-07, AY 2007-08, AY 2008-09, AY 2009-10, AY 2010-11 and AY 2011- 12. Further, the honourable ITAT, Pune in the Appellant's own case, vide its order ITA No 946 to 948/PN/2013 elated 23.12.2016 has decided the appeal in the favour of the Persistent Systems Private Limited wherein it was held that a mere existence of the close connection and 'more than ordinary profits' are not enough to assume an arrangement as contemplated u/s. 80-IA(10) of the Act. The Assessing Officer is also required to prove any such arrangement existing which resulted in more than ordinary profits. The learned AO has not proved any arrangement between the parties in the facts of the case. Therefore, the Appellant prayed that in view of the favourable orders of the Honourable ITAT and of the CIT(A) in the earlier years on this ground, the disallowance made by the learned AO u/s.10AA(9) r.w.s.80-IA(10) be deleted. 2.2.3 As stated above, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are not enough to assume an arrangement as contemplated u/s.80IA(10) of the Act. The Assessing Officer is also required to prove any such arrangement existing which resulted in more than ordinary profits. In the entire assessment order, the Assessing Officer has not specifically spelled out what exact arrangement existed between the parties in the present case which resulted in more than ordinary profits. Therefore, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and relief provided to the assessee is hereby sustained. Thus, Ground No.4 raised in appeal by the Revenue is dismissed. ADJUDICATION OF THE ADDITIONAL GROUND : 18. The Revenue has also raised additional grounds of appeal which reads as follows: "1. On the facts and circumstances of the case and in law, the Ld. CIT(Appeals) has erred in admitting additional ground of appeal on education cess and secondary & higher education cess of Rs. 2,82,39,556/- without giving an opportunity of being heard to the Assessing Officer. 2. On the facts and circumstances of the case and in law, the Ld. CIT(Appeals), Pune has failed to appreciate the principle of natural justice while allowing relief to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no.3 is required to be reversed and the said issue is answered in favour of the assessee." From the above, it is evident that education Cess, which is not disallowable item, on its payment, the cess is an allowable expenditure as per provision of section 40(a)(ii) of the Act. Considering the settled nature of the issue as per the ratio laid down in the above referred case by the Hon'ble High Court of Judicature for Rajasthan Bench at Jaipur, ground of Cross objection No.4 is allowed." Respectfully, following the decision of the Co-ordinate Bench of the Tribunal, Pune in the above referred case, we allow this ground in favour of the assessee. Thus, ground raised in cross objection by the assessee is allowed." 20. The Ld. Counsel for the assessee also submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suo-moto disallowed only a meager amount of expenditure in comparison to dividend income and section 14A of the Act lays down the mechanism for determining such amount of expenditure incurred in relation to exempt income in accordance with method as prescribed under Rule 8D of I T. Rules, 1962. 4. On the facts and circumstances of the case, the Ld. CIT(Appeals) has erred in deleting the disallowance u/s.10AA(9) r.w.s. 801A(10) of the Income tax Act, 1961 without appreciating the fact that the assessee itself in the comparables furnished in its transfer pricing report had 'shown 'ordinary profit' to be of 12.79% as against net profit 'margin of 30.50% shown by the assessee. 5. The appellant craves leave to add, alter, amend or omit any of the above grounds of appeal during the course of appellate proceedings." 24. Since parties herein have agreed that Ground No.1 raised in ITA No.498/PUN/2020 for assessment year 2015-16 is similar and identical to Ground No.1 raised in ITA No.497/PUN/2020 for assessment year 2014-15. Therefore, our decision rendered in ITA No.497/PUN/2020 for assessment year 2014-15 while adjudicating the Ground No.1 shall apply mutatismutandis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , rectify, delete or raise any grounds of appeal during the course of the appellate proceeding." 28. We find similar and identical additional grounds on "education cess‟ have been raised in ITA No.497/PUN/2020 for the assessment year 2014-15. Since all other facts, arguments of the parties are same and similar, Therefore, our decision rendered in ITA No.497/PUN/2020 for assessment year 2014-15 while adjudicating the additional grounds shall apply mutatismutandis to ITA No.498/PUN/2020 for the additional grounds also for the assessment year 2015-16. Thus, additional grounds raised by the Revenue are allowed for statistical purposes. 29. In the result, appeal of the Revenue in ITA No.498/PUN/2020 is partly allowed for statistical purposes. ITA No. 499/PUN/2020 A.Y. 2016-17 30. In ITA No.499/PUN/2020, the Revenue has raised following grounds of appeal: "1. On the facts and circumstances of the case, the Ld. CIT(Appeals) has erred in deleting the disallowance u/s 14A r.w.r.8D of I T Rules, 1962 without appreciating the fact that the A.O had recorded his dissatisfaction regarding the correctness of the claim of the assessee during the assessment proceedings. 2. On the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur observation therein and accordingly, for this year also, the issue needs to be verified that once the assessee had made suomoto disallowance of Rs. 16.74 lakhs and in the given circumstances when the Assessing Officer had made disallowance deducting such suo-moto disallowance made by the assessee then whether such disallowance made for this year is made at the same percentage or more than 0.50% made in respect of earlier two years. In view thereof, we set aside the order of the Ld. CIT(Appeals) on this issue and remand the matter back to the file of the Assessing Officer for verification and re-adjudication after complying with the principles of natural justice and as per law. Thus, Ground Nos. 1 and 2 raised in appeal by the Revenue are allowed for statistical purposes. 33. Both parties herein have agreed that Ground No.3 raised in ITA No.499/PUN/2020 for the assessment year 2016-17 is similar and identical to Ground No.4 raised in ITA No.497/PUN/2020 for assessment year 2014- 15. Therefore, our decision rendered in ITA No.497/PUN/2020 for assessment year 2014-15 while adjudicating the Ground No.4 shall apply mutatis-mutandis to ITA No.499/PUN/2020 for Ground No.3 also for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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